“We have always known that heedless self-interest was bad morals; we know now that it is bad economics.”

Archive for the ‘Uncategorized’ Category

A colleague points out a couple interesting features of the miracle jobs figures (raw data here; summary Google Docs spreadsheet here) for the Quarterly Census on Employment and Wages that the Walker administration is touting.

First, somehow or other, even though the new data show that private sector employment increased in 4Q 2011 over 4Q 2010 (+1.4%, itself nothing to write home about), the corresponding wage bill (even before adjusting for inflation) was down (-0.5%), hence the average private sector wage in Q4 2011 fell 1.8 percent year-over-year. The comparison to the previous year’s quarter may not address all seasonality issues with the data, so it’s possible there’s an explanation in calendar issues or something else that would work itself out in a proper seasonal adjustment process.[1] However, falling private sector wage payments usually occur only in periods of falling employment. Indeed, the previous episode of declining wages in Wisconsin was in the depths of the recession when private sector employment was falling at a rate of 5-6 percent year-over-year; the private sector wage bill had shown year-over-year increases from Q2 2010 through Q3 2011.

Second, even though jobs that can’t be located in a particular county are only 1.8% of total employment in Wisconsin, they account for 42 percent of the claimed employment increase. The average weekly wage for the jobs of undisclosed location also showed an especially large decline.

Regardless of the outcome of the election, the real QCEW data release later in the month should be interesting. The bottom line is, as Menzie Chinn observed at Econbrowser, that Wisconsin employment growth in the early Walker era has by any account lagged both the U.S. as a whole and the pace implied by Walker’s 250,000 job promise.

[1] There were much smaller year-over-year declines in the wage bill and the average weekly wage from Q4 2004 to Q4 2005.

Dane County’s two hospitals that deliver babies are each spending close to $40 million to spruce up maternity units and related facilities for a simple reason: Young women are key health care consumers, often deciding where their families will seek medical services for decades.

Many pregnant women tour both hospitals before choosing where to give birth, some bringing birth plans for each step of labor and delivery, said Holly Halberslaben, director of St. Mary’s family care suites.

“They really do their homework,” Halberslaben said. “It can be their first time in a hospital. You want to retain them.”

The somewhat buried exculpatory case for these investments is that the facilities have been operating near capacity, and the Madison area is the fastest-growing part of Wisconsin apart from some areas in the Twin Cities’ exurban fringe. Nevertheless, the hospitals fairly evenly split a market of just over 7,000 annual births, so $80 million is not an insubstantial cost to recover.

I wonder how many expecting moms really are cross-shopping the facilities for compatibility with birth “plans.” [*] Many if not most of the births sort into the two hospitals on the basis of affiliations that send participants in several of the major local health insurance plans to one hospital or the other. So even a modest amount of gold-plating can represent a large cost per birth on the contestable margin. Granted, in addition to some Cadillac plan participants, the uninsured population has (Hobson’s?) choice as to where to give birth. Though it’s messed up in a whole different way if the hospitals’ business plans would seek to recover a significant share of costs incurred to attract well-to-do moms to these facilities from the uninsured.

[*] When John was born, the plan was to have a healthy baby, which turned out to be the plan that was robust to complications that would have mooted any other plans.

[T]he deal supposedly struck between Obama and the Republicans is not too bad and better than was to be expected. We give the rich about $60 billion a year, and in return get about as much economic stimulus, focused on low- and moderate-income people, as we could hope to get.

I observe that the Republican positions include permanent extension of all Bush tax cuts, permanent repeal of the estate tax, and no (or no net stimulus from) UI benefits. So I tend to agree. The best policy and politics would have been to allow the Bush tax cuts to expire and force their replacement with something that was less damaging to the government’s long-term finances, but as long as I’m dreaming I might as well ask for a pony.

What would solidify my position would be news of associated side deals for (a) a suitable increase in the debt limit, since it’s clear that deficits really don’t matter (certainly in the near term), (b) no government shutdown in the next Congress, and/or (c) no fair doom-mongering any cashflow shortfall for Social Security due to the payroll tax holiday. Did I mention that pony?

I was mulling this morning’s sucky employment report (which sucks, don’t get me wrong) and was curious as to the effects of the seasonal adjustment process. You might expect a seasonal increase in non-farm payrolls for November from late holiday-season hiring, so it would make sense for the seasonal adjustment to knock the NSA figure down. But how much? Here’s the last three years of October-November employment change:

There is, of course, no law of econometrics violated here. The adjustment process is complex and doesn’t assume the effect is the same every year (a feature, not a bug). For instance, the not-well-loved net birth/death adjustment is applied before seasonal adjustment and a note on the BLS website regarding the effect of the net birth/death model on seasonally adjusted payrolls basically says, “Don’t ask because we can’t tell you.” So. But still.

Over at Angry Bear, Ken Houghton recommends Steve Randy Waldman saying that economists of the liberal-technocrat school shouldn’t too-hastily dismiss Austrian-style “hangover theory,” and in the event you happen upon this but not Ken’s post, so do I. Waldman:

Austrian-ish “hangover theory” claims, plausibly, that if for some reason the economy has been geared to production that was feasible and highly valued in previous periods, but which now is no longer feasible or highly valued, there will be a slump in production. It wisely asks us to consider not only the prosperity we measure today, but the sustainability of that prosperity going forward…The Austrians focus on unsustainable arrangements of real capital, while the Keynesians focus on unsustainable arrangements with respect to money, debt, savings, and income. I think both approaches are fruitful.

Grant that “real capital” may include human capital and there’s a sense in which, say, the idea that some of our unemployment is structural is not totally wrong: marginally competent house-construction laborers and housing-finance paper-pushers had their bullshit jobs in the middle of the zilches thanks to the housing bubble, and are not liable to return to similar jobs unless someone stupidly reinflates that bubble. This doesn’t mean that the liberal technocrats are wrong to point out that a lot of other unemployment is collateral damage to the bubble deflation.

I have one other nit to pick: Waldman decries “vulgar” make-work Keynesianism as a dead-end, observing that “effort is not production.” That’s true enough, but it’s important to remember that there are worse things than paying someone to dig a hole and fill it back in — what the Econ 101 student might take as the gold standard of useless make-work. In fact, we can (and do) pay people to dig a hole, fill it with something valuable, set the contents on fire, and then not fill the hole back in. (I’m looking at you, Afghanistan!) If anything, the stimulus spending via ARRA has avoided make-work to a fault, a bug in the original concept that may be a feature — as long as Chris Christie’s army doesn’t pass up too much free money — both for dragging out the actual spending and for leaving behind actual valuable public capital.

An interesting (if not insidious) argument in Todd Zywicki’s much-discussed* paper [PDF] on credit-card interchange fees is the claim that two-sidedness of the market — in a nutshell, it’s necessary have both buyers and sellers get on a payment platform as a prerequisite to carrying out transactions — upends the traditional efficiency appeal of pricing at cost:

The claim that interchange fees are too high is also problematic as a matter of economic theory, as it fails to appreciate the “two-sided market” of credit card networks in which overall network efficiency arises from the interdependencies of the network’s various actors and the ability to reallocate costs among them in order the maximize the value of the system as a whole on behalf of the beneficiaries of that system as a group.

There’s already one sleight-of-hand here, in that the theory suggests that cross-subsidies from one side of the market to the other may be efficient but not that platform owners’ economic profits are innocent. Moreover, two-sided markets theory doesn’t specify which side(s) of the market get the subsidy as a general matter, so you can’t simply say “two-sided markets hence this subsidy.” I’m not suggesting that readers not believe in potential network externalities, just warning that there’s considerable risk of just-so storytelling.

To that end, I suggest a thought experiment. Imagine a world where the price on the supposedly subsidizing side were lower than it is now, and the subsidized side were higher, and the state of the market that implies. There’s a two-sided markets argument to make for additional subsidy if you would look at the resulting market conditions and say, “Wow, we really should impose a tax to bring up the subsidizing price to today’s level and provide today’s subsidies to overcome obvious network externalities!”

In the case of credit-card interchange fees, this state of the world isn’t terribly hard to imagine. Set the way-back machine to the early- to mid-1990s, and there are lower interchange fees, few rewards cards, and fairly high rates of adoption of credit cards. (The dominant forms of rewards cards at the time are oil company loyalty cards, which as Adam Levitin observes are a conceptually different form of “subsidy,” and airline frequent-flyer affinity cards charging cardholders above-average annual fees.) It’s 1991. Should we impose a tax of a quarter or a half-percent on (at least) a portion of merchants’ receipts to give out cash or frequent-flyer miles to subsidize further credit-card spending?

My guess is that if I walked into a GMU law and economics seminar in 1995 and proposed a sales tax to give perks to the credit-card constrained** to overcome network externalities in payment markets that I’d have been laughed back to College Park. But then I’m just cynical.